How long are they going to take?
What more do they need?
Recently I’ve had quite a number of questions along the lines of the above from clients who are selling/ buying management rights businesses.
What are they referring to? The process of obtaining a Body corporate’s consent to an assignment.
There has been a trend over the past 12-24 months where the point between signing a contract for a sale/purchase of management rights and the eventual settlement date is taking longer and longer. There are often other contributing issues but the main driver is the length of time it takes to get the consent of the body corporate.
Why is this the case?
- There are a lot of people involved – the buyer, the seller, their respective solicitors, the body corporate manager, members of the committee, the body corporate solicitor and sometimes a 3rd party company engaged to interview and/or test the buyer. To get that many people on the same page and to agree takes time;
- Lot owners and committees are more aware of their rights under the Body Corporate and Community Management Actand the caretaking and letting agreements and are exercising those rights;
- Bodies corporate and their solicitors are requesting significantly more information from buyers than ever before (sometimes without real justification);
- Buyers and sellers are not organized and adequately prepared;
- Some committees perceive there to be a manager skills gap, particularly in relation to communication and a lack of any experience applicable to running a management rights business. Unfortunately in a number of instances this view has been justified; and
- Bodies corporate have previously experienced poor managers and/or have been advised of poor managers by their body corporate manager or body corporate solicitor. Again, and unfortunately, this view has been justified.
Particularly in light of points 4 and 5 it has meant that committees are more cautious when considering assignments, are asking for significantly more information and oftentimes when the applicant has little to no experience a requirement that the applicant undertake appropriate training, which, as you can imagine takes time.
What can we do about it?
- Sellers, their lawyers and their agents must make it clear to the buyer from the outset what items are required to be given to the body corporate and when those items need to be provided. This would ideally be before the finance condition is satisfied (not 3 weeks after);
- Sellers take into account the skills and experience of the potential buyer in addition to their monetary offer. It just may be that a smoother body corporate consent process due to the buyer having sufficient skills will save on time, money and angst when compared to a failed or significantly drawn out body corporate consent process; and
- The written application is the first thing a committee will see. Whether consciously or sub-consciously they will make judgments about the buyer based on that initial written application. As such I strongly suggest that buyers put their best foot forward and put together a high class application which includes all of the elements and supporting documents required under both the caretaking and letting agreements and the legislation. If it is thorough and professional then the committee’s initial judgment is likely to be positive. In some cases it may be advisable for buyers to engage the assistance of a third party that specializes in putting such applications together – they are out there.
The take away?
We can’t control what the committee, the body corporate manager or the body corporate solicitor do. What we can control is the quality of a buyer’s application and its timing. I strongly believe that improvements in these areas alone will lessen the time between the contract date and the settlement date and make the consent process less angst ridden and smoother.
Written
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